The Impact of Tax Structure on Investment: An Empirical Assessment for OECD Countries

Abstract

In the present empirical analysis we try to assess the impact of taxation on investment growth. In particular, and by using gross fixed capital formation as a proxy for investment, we intend to evaluate the impact of the taxation structure in investment dynamics, in a short and a long-run perspectives. This empirical exercise was conducted for all OECD countries, during the 1980-2015 period. Through panel data econometric techniques, we find optimal tax-investment threshold values, specially higher for short-term than for long-term evolution. Also, we find optimal income taxation rounding 9%, in percentage of GDP, an average optimal value 12.7% for consumption taxes to promote annual investment growth.

Keywords: Investment Growth; Tax Systems; Fiscal Policy; Optimal Taxation

JEL Classification: D25; E62; H21; O47